Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Conduent Incorporated (NYSE:CNDT).
Conduent Incorporated (NYSE:CNDT) has seen a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that CNDT isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s check out the fresh hedge fund action regarding Conduent Incorporated (NYSE:CNDT).
What have hedge funds been doing with Conduent Incorporated (NYSE:CNDT)?
Heading into the second quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in CNDT over the last 15 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Icahn Capital LP was the largest shareholder of Conduent Incorporated (NYSE:CNDT), with a stake worth $273.9 million reported as of the end of March. Trailing Icahn Capital LP was AQR Capital Management, which amassed a stake valued at $69 million. Renaissance Technologies, D E Shaw, and Rubric Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Conduent Incorporated (NYSE:CNDT) has witnessed falling interest from the smart money, logic holds that there is a sect of hedgies that elected to cut their full holdings by the end of the third quarter. Intriguingly, David Cohen and Harold Levy’s Iridian Asset Management dumped the biggest stake of all the hedgies monitored by Insider Monkey, valued at an estimated $66.5 million in stock, and Larry Robbins’s Glenview Capital was right behind this move, as the fund cut about $23.1 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Conduent Incorporated (NYSE:CNDT). These stocks are Clearway Energy, Inc. (NYSE:CWEN), Sanderson Farms, Inc. (NASDAQ:SAFM), Owens-Illinois Inc (NYSE:OI), and frontdoor, inc. (NASDAQ:FTDR). This group of stocks’ market values are closest to CNDT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CWEN | 27 | 155158 | 15 |
| SAFM | 21 | 485986 | 8 |
| OI | 23 | 341080 | 2 |
| FTDR | 34 | 435267 | 10 |
| Average | 26.25 | 354373 | 8.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $354 million. That figure was $580 million in CNDT’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Sanderson Farms, Inc. (NASDAQ:SAFM) is the least popular one with only 21 bullish hedge fund positions. Conduent Incorporated (NYSE:CNDT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CNDT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CNDT were disappointed as the stock returned -33.9% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
